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Tawanda Musarurwa Senior Business Reporter
Hospitality firm, Rainbow Tourism Group Limited (RTG), has announced plans to buy back $16,68 million worth of debentures issued in 2018.

The debenture redemption has been necessitated by depreciation of the local currency, which has made the debentures “suboptimal”.

A debenture is a form of bond or long-term loan, which is issued by a company, which typically carries a fixed rate of interest over the course of the loan.

Companies use them as a long-term source of finance.

The buyback will also free three hotel property assets that are linked to the debentures, said RTG.

The three assets are Bulawayo Rainbow Hotel, Victoria Falls Rainbow Hotel and A’Zambezi River Lodge.

This will allow the group to utilise the assets in more effective financing arrangements.

“The board of directors of the Company hereby advises debenture holders that the board has resolved to redeem in full the 16 687 500 debentures issued during January 2018 capital raise.

“The redemption will be consummated in line with Clause 6 of the Rainbow Tourism Group notarial deed of debenture dated February 20, 2019,” said company secretary Napoleon Mtukwa.

“The board of the company has arrived at this decision primarily for the following reasons: The debenture is secured by the following three hotel assets owned by the company; Stand 592 Bulawayo Township together with Subdivision A of Stand 591A Bulawayo Township and the remaining extent of Stand 591A Bulawayo Township, otherwise known as Bulawayo Rainbow Hotel; Stand 278 Victoria Falls Township, otherwise known as Victoria Falls Rainbow Hotel; Stand 308 Victoria Falls Township, otherwise known as A’Zambezi River Lodge.

“The combined value of the three properties relative to the value of the debentures have rendered the financing arrangement sub-optimal.

“Evidently, continued securitisation of the company’s properties against the Zimbabwe dollar debentures now shows an inefficient way of utilising the company’s assets. Redeeming all the debentures will  allow the company flexibility and an opportunity to explore optimal funding alternatives for growth.”

In January 2018, RTG raised $2,5 million through a rights issue linked to debentures.

The capital raise comprised of $5 812 500 worth of rights issue shares and $16 687 500 in linked redeemable debentures carrying a par value of $1 each.

The rights issue shares and debentures have since been delinked and both were listed and are trading on the Zimbabwe Stock Exchange (ZSE), which is currently suspended.

“The board believes that full redemption will allow debenture holders an opportunity to redeploy their funds into other investment instruments likely to yield returns commensurate with the now obtaining environment,” said Mr Mtukwa.

According to RTG, the debentures will be redeemed at a price of $1 per debenture, being the par value of each debenture.

“Notwithstanding provision 5,6 of the Rainbow Tourism Group notarial deed of debenture which provides for a 60-day notice for redemption from the day of publication of this notice, the company has put in place adequate funding to fully pay the accrued interest for the period between February 22, 2020 to August 21, 2020 and redeem the entire principal on the same day.

“Debenture holders should thus expect payment of their debenture principle amount plus accrued interest on or about June 30, 2020,” said Mr Mtukwa.